AstraZeneca and University College London (UCL) will announce a research partnership tomorrow to develop medicines that use stem cells to repair damaged eyesight in people with diabetes.

Under the three-year deal funded by the drugmaker, researchers from AstraZeneca will team up with scientists at the UCL Institute of Ophthalmology to work on new medicines that use the regenerative capacity of stem cells. They hope to come up with a compound in three to five years, which could then undergo clinical development and possibly be on the market in 10 years' time.

Dr Marcus Fruttiger of the UCL Institute of Ophthalmology, who is leading the project, said: "These tools could be used either to manufacture transplantable material or to directly stimulate new cell growth in the eye to help restore or improve the vision of those with diabetic retinopathy [DR]."

DR is now the most common cause of vision impairment or blindness among western people of working age. The majority of patients with type-1 diabetes, which occurs when the body produces no insulin and often develops during the teenage years, will suffer eyesight problems and about 20%-30% will become blind. Moreover, at least 50% of patients with type-2 diabetes – the far more common type of diabetes, which occurs when the body produces too little insulin or when cells in the body do not react properly to insulin – will also develop retinopathy over time.

With the rapid spread of type-2 diabetes, which is linked to obesity, the need for a retinopathy treatment will grow as more than 438 million people are expected to suffer from diabetes by 2030. A study published this year by Oxford University predicted that eight out of 10 men and almost seven in 10 women will be overweight or obese by 2020. It forecast a 98% rise in obesity-related diabetes by 2050.

Alan Lamont, director of sciences and technology alliances at AstraZeneca. said: "We're getting very keen on the whole area of regenerative medicines and they will be part of our research development over the next few years." He said the collaboration aimed to come up with a treatment that could be administered to the back of the eye to repair damage locally.

AstraZeneca's US rival Pfizer also has a partnership with Professor Pete Coffey of the UCL Institute of Ophthalmology, for another eye condition, macular degeneration. Coffey said: "It's great that 'Big Pharma' is considering regenerative medicines as a serious possibility." He added: "This is British science being developed into a commercial entity with the pharmaceutical industry. It's a good example why the government shouldn't cut funding for biomedical research."

While this is the first time that AstraZeneca has worked on medicine for retinopathy, diabetes has been an area of focus. The company has a new diabetes treatment on the market called Onglyza, which was developed with Bristol-Myers Squibb, and the companies are developing a second diabetes drug that could be submitted to regulators for approval later this year.